A fiscal stimulus works to close a recessionary gap by shifting the
A)AD curve leftward.
B)AS curve leftward.
C)AD curve leftward and AS curve leftward.
D)AD curve rightward.
E)potential GDP line leftward.

Question

Quizplus · Accepted Answer

Fiscal stimulus works by increasing government spending or reducing taxes, which shifts the AD curve rightward. This leads to an increase in output and employment, helping to close a recessionary gap. Shifting the AS curve leftward would actually worsen the recession by reducing output and increasing prices. Therefore, the correct answer is (D) AD curve rightward.

A Fiscal Stimulus Works to Close a Recessionary Gap by Shifting